US auction system is best way to allocate unused radio channels

By Wong Kin-ming (SCMP, 30th January 2008)                                                      

The case involving Citizens’ Radio took a bizarre twist,  mainly due to poorly defined criteria for granting broadcasting licences. Magistrate Douglas Yau Tak-hong, ruled that the Telecommunications Ordinance was in breach of both the Basic Law and the Bill of Rights, before later halting his judgment at the request of the government.

This  is not an isolated case. When Commercial Radio renewed its licence in 2003, there were  rumours  it would be cut from  12 years to three years, for  political reasons. Maybe it is time  to think about reforming  the way radio channels are allocated, which is mainly  at the discretion of the government.

In the early 20th century the US government  put the  radio licensing system in the hands of the Federal Communications Commission (FCC). It did so because  the airwave spectrum is limited, and if radio operators are not regulated by the government,  operators using the same channels would interfere with  one another, creating chaos.

However, the 1991 Nobel laureate in economics, Ronald H. Coase, in his article, The Federal Communications Commission  pointed out, the “market failure” (that is, telecommunications channel interference) is not due to limited supply but lack of well-defined private property rights of the channels.

We  need an efficient allocation mechanism. What matters is that  private property rights are well defined.  Only by allowing the highest bidder to determine what to do with limited resources can they be most efficiently utilised.

When the US has unused broadcast channels, the FCC auctions the channel through the reformed Telecommunications Act and this system has worked satisfactorily. Clarifying property rights and using auctions for channel allocation can help avoid political turbulence.

Under this system, channels are allocated indirectly according to the public’s preference (popularity is reflected in the institution’s revenue and, thus, its bid price), and any proceeds from the auction of this limited resource are returned to the public.

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